Bearish sentiments sweep market

The bearish sentiments from the previous week persisted as the bears loom large over the equities market. The general bearish sentiment in the market caused the index to shed 0.93 percent to bring the year-to-date (Ytd) return to -0.48 percent. Also, the decline in volume and value traded of 44.06 percent and 9.46 percent further accentuates the mood of the market.

We are of the opinion that the lack of news flow is largely to blame for this lacklustre performance and so, we assert that the market might begin to swing positive with the influx of Q2:2014 results expected soon.

Banking Sector: Banking stocks pare to partly shed May gains

The banking sector’s performance waned as 10 of 15 stocks declined week-on-week (WoW) to bring the sector’s Ytd return to -1.85 percent. The only gainers were FCMB (2.91%) and Sterling Bank (2.11%), while the largest decliners included Guaranty (7.77%), Zenith Bank (5.93%), and ETI (4.25%).

Diamond Bank plc is seeking approval from the Nigerian Stock Exchange (NSE) to raise approximately N50 billion ($309m) via a rights issue in a bid to shore up their capital base. This rights issue is to existing shareholders and will add 8.68 billion ordinary shares of 50 kobo each at N5.80 per share to the bank’s current shares outstanding.

Much in line with our expectations, there has been some profit-taking on the banking stocks after the May rally during which most counters appreciated (save for Wema Bank and Unity Bank). We expect a good level of activity in the coming weeks, which could push the sector returns upwards due to position taking for expected good Q2:2014 results.

Oil and Gas: Oando secures consent for ConocoPhillips acquisition

Oando Energy Resources, a subsidiary of Oando plc, on Tuesday, announced that it had secured the consent of the minister of petroleum resources for the acquisition of the assets of ConocoPhillips, representing a seal of approval from the Federal Government.

Oando stated that both parties in the transaction will now work towards completing the deal on, before or shortly after the long stop date of June 30, 2014. The proposed acquisition will increase the production capacity of Oando in the exploration industry by an estimated 43,000boe/d (barrels of oil equivalent per day), positioning them as one of the country’s leading indigenous exploration companies.

After the announcement, Oando shares embarked on a bullish run on the floor of the NSE, as the counter returned 51.85 percent to close at N30.37 for the week. We expect the rally to continue in the short term as investors continue to take position in anticipation of the growth potential the company portends.

MRS represents the other significant movement in the industry during the week. The counter closed at N64, which represents a 33.33 percent appreciation over the previous week, while Eterna also advanced by 4.09 percent to close N4.6. We maintain our “Sell” recommendation on MRS, and expect the activities of profit takers to drag the stock in the coming week.

Also, Conoil was unable to sustain last week’s rally as the stock shed 5.68 percent to close at N68.6, while Mobil also declined by 1.57 percent to close and N129.

Finally, Total and Seplat both closed marginally up, gaining 0.30 percent and 1.52 percent, respectively, to settle at N170.5 and N670 in that order for the week.

Industrial goods: Calm week as investors’ await the next trigger

Investors seemingly traded cautiously on industrial goods stocks in the week with negative sentiments dominating stock trades. Asides awaiting the influx of Q2:2014 results, no news flow filtered in to the market to trigger significant stock movements. 

While the news on Lafarge’s consolidation plans appears to be waning, investors remain somewhat cautious in their trading decisions on Lafarge WAPCO and AshakaCem.

AshakaCem witnessed upward price movements as the stock gained the most with 7 percent W-o-W while CCNN advanced with 3.48 percent. For the sector heavyweights, Lafarge WAPCO and Dangote Cement, they each declined by 0.01 percent and 0.88 percent, respectively.

In the chemical and paints segment, CAP gained 5 percent at the close of the week to break its 11-day streak of closing flat, while and Berger traded flat for the week. Paint Comany however closed the week 1.43 percent lower having traded flat in the prior week. As measured by our MERIIND index the industrial goods sector lost 0.65 percent in the week. Expectations of impressive Q2:2014 results remain the major likely driver of positive returns.